Redevelopment: The fate of small business

[Dacia0117]

Economic development is often the goal for political officials serving an area in decline or that has already hit rock bottom. Many times big businesses and retail are sought out to help bring a vibrant economic market back to the area. However, in order to this huge financial incentives are provided wealthy companies and big box retailers to locate in the area, while smaller, local businesses are forced out.

Should we be concerned about this and assume that these smaller businesses completely lose out by either being bought out or not being able to compete?

Or should we assume that these smaller businesses become better off by maybe being able to profit from negotiating the sale of their space with developers?

Has anyone heard of any effective ways a city has chosen to deal with this issue?

[Chet]

Can you cite an example? This is WAY broad the way its phrased, and too contrived / ripe for the wal mart bashers.

[mike gurnee]

Main Street concepts work.

The typical economic development programs are aimed at job creation: the more jobs, the better headlines. Tax programs such as abatements and increment financing only work when property is improved, and usually to a major extent; and they are often tied to job creation again. The small business person is working 70 hour weeks with one or two employees...and struggles to keep the doors open. She doesn't have $100K to invest in building improvements, doesn't need more employees. She needs more customers. State and federal programs don't help.

Programs are needed to get more people to visit the area, stop in, and make purchases. Main Street works on such with tools for better marketing, ways to make the community more attractive to potential customers.

Not a word here about a certain big box.

[Dacia0117]

Let's say hypothetically, that these small business owners did have the funding necessary to make building improvements and had customers, yet was still not tapping in the city's full market potential, as far as providing jobs and generating revenues. Should these small businesses still have to compete or go out of business for bigger business to thrive?

[Cardinal]

The empirical analysis of large general merchandise store impacts is remarkably consistent. When one of these stores locates in a community, it will increase the city's overall sales, it will decrease sales in nearby communities, it will hurt some other merchants competing directly with ti, and it will benefit some merchants offering complementary goods or services. The analyses have some holes, but in a market with little or no growth, an average of perhaps 40% of the sales at a Wal-Mart will be taken from existing merchants in the city. (I would caution that there are so may variables from city to city that this should not be used as a blanket statistic). As an economic developer, I want to especially point to the second point. The community that does not get this store will suffer far worse than the community that does get the store.

One thing is rarely found in the way any community deals with the large discounters, or really, any of the national chains. That one thing is a thorough and unbiased analysis of the true impacts. As an example, the city next to mine just approved an offer to Wal-Mart of $2.3 million to build a new supercenter. They have had a regular Wal-Mart since 1987, but were afraid it would close since another supercenter opened not far away. In reality, Wal-Mart would wnat and would pay the price to locate where the incentives were offered, but the city did not bother to think it through. Instead, they figured that the new store would have an additional $19 million in sales and they offered the sales taxes that would be collected on that as an incentive. Those are new sales, so the city isn't giving up anything, right? Of course not. New superstores (it doesn't matter who) will take about 90% of their grocery business from other grocers in the market. Those are not new sales, and the city will end up losing revenue due to the payments it will now have to make.

Now let's get to the other point. Imagine that your city, in fit of moral ortrage and big box fervor, says no to one of them. They are not going to saimply say, "Well Town A doesn't want us in their market so we will just leave them alone." They are going to look at Town B and figure out that a store on the highway at such and such a spot will capture both the market for Town B and for Town A. They will build, and residents from Town A will shop at the store. When they do, they will stop at the bank there, have some lunch, and shop in the grocery store in the center across the street. That is all money they may have once spent in Town A, but people look for convenience and it is convenient to do all of their shopping in a single trip. Town B may lose its hardware store, but the grocery store and restaurant will make more sales. Town A may lose its hardware store, grocery store and restaurant.

I work in Town A. We said no. We let five of our seven large general merchandise stores leave to set up in surrounding cities, with all of the others. Sixty percent of the business at the Costco, in a Town B five miles from out city limits, comes from Town A. Fifteen years ago our stores captured 2/3 of the county's sales. We now capture just 1/3. Our sales have declined by about $400 million over the last four years. Are we better off for protecting our locals in this way? I don't think the numbers would suggest that is so.

[Mr. Sturm]

The empirical analysis of large general merchandise store impacts is remarkably consistent. When one of these stores locates in a community, it will increase the city's overall sales, it will decrease sales in nearby communities, it will hurt some other merchants competing directly with ti, and it will benefit some merchants offering complementary goods or services. The analyses have some holes, but in a market with little or no growth, an average of perhaps 40% of the sales at a Wal-Mart will be taken from existing merchants in the city. (I would caution that there are so may variables from city to city that this should not be used as a blanket statistic). As an economic developer, I want to especially point to the second point. The community that does not get this store will suffer far worse than the community that does get the store.

One thing is rarely found in the way any community deals with the large discounters, or really, any of the national chains. That one thing is a thorough and unbiased analysis of the true impacts. As an example, the city next to mine just approved an offer to Wal-Mart of $2.3 million to build a new supercenter. They have had a regular Wal-Mart since 1987, but were afraid it would close since another supercenter opened not far away. In reality, Wal-Mart would wnat and would pay the price to locate where the incentives were offered, but the city did not bother to think it through. Instead, they figured that the new store would have an additional $19 million in sales and they offered the sales taxes that would be collected on that as an incentive. Those are new sales, so the city isn't giving up anything, right? Of course not. New superstores (it doesn't matter who) will take about 90% of their grocery business from other grocers in the market. Those are not new sales, and the city will end up losing revenue due to the payments it will now have to make.

Now let's get to the other point. Imagine that your city, in fit of moral ortrage and big box fervor, says no to one of them. They are not going to saimply say, "Well Town A doesn't want us in their market so we will just leave them alone." They are going to look at Town B and figure out that a store on the highway at such and such a spot will capture both the market for Town B and for Town A. They will build, and residents from Town A will shop at the store. When they do, they will stop at the bank there, have some lunch, and shop in the grocery store in the center across the street. That is all money they may have once spent in Town A, but people look for convenience and it is convenient to do all of their shopping in a single trip. Town B may lose its hardware store, but the grocery store and restaurant will make more sales. Town A may lose its hardware store, grocery store and restaurant.

I work in Town A. We said no. We let five of our seven large general merchandise stores leave to set up in surrounding cities, with all of the others. Sixty percent of the business at the Costco, in a Town B five miles from out city limits, comes from Town A. Fifteen years ago our stores captured 2/3 of the county's sales. We now capture just 1/3. Our sales have declined by about $400 million over the last four years. Are we better off for protecting our locals in this way? I don't think the numbers would suggest that is so.

Another thing about the outside super-chain stores is that there is decreased re-investment in the local community as a result of their presence. Unlike local merchants, the revenue of the super chains is transferred to a central headquarters of operations outside of the community, whereas the locals would keep that revenue and spend it within the area. Stores like Wal-Mart do offer huge potential tax-revenue, but like you said often the majority of this is at the expense of pre-existing merchants, and so these are not new sales and additional profits, but rather a transfer of wealth from local merchants to super chains. This in effect drains the circulation of money in the community that the super chain is located.

However, like you also pointed out, inter-city competition is what makes this all fall flat on its head, forcing cities to compete for the super chain so as not to lose the tax revenue altogether.

[Northboy]

Another thing about the outside super-chain stores is that there is decreased re-investment in the local community as a result of their presence. Unlike local merchants, the revenue of the super chains is transferred to a central headquarters of operations outside of the community, whereas the locals would keep that revenue and spend it within the area. Stores like Wal-Mart do offer huge potential tax-revenue, but like you said often the majority of this is at the expense of pre-existing merchants, and so these are not new sales and additional profits, but rather a transfer of wealth from local merchants to super chains. This in effect drains the circulation of money in the community that the super chain is located.

However, like you also pointed out, inter-city competition is what makes this all fall flat on its head, forcing cities to compete for the super chain so as not to lose the tax revenue altogether.

IMHO
The real elephant in the room ( is this saying becoming a cliche?? I better stop using it ) when it comes to large retail based on mass scale and comparative advantage is the real effect such operations have on local and regional manufacturers. In short, manufacturers have difficulty reaching economies of scale as they can't develop stable product distribution. Price is one thing but if no one carries your product you're doomed to failure. Box stores mine the public and move on.. pure and simple... and they don't even clean up after themselves..